Spring -- when a builder's fancy should turn to new home sites. But with mortgage interest rates stubborning wedged at 15 1/2 percent, Washington-area builders are cautious about their construction plans, an informal survey of top homebuilders indicates.
Although most report that traffic is up, sales remain sluggish, holding out little reason for any surge in housing starts here. Further clouding the horizon is the expectation that mortgage rates won't fall far enough -- if at all -- to encourage any pickup in sales.
To survive, builders are holding down their inventory or concentrating on specialized markets that are more immune from money market conditions.
"I don't recall feeling so uncertain," said Jack Starr of Poretsky and Starr, of Chevy Chase. Sales are flat and off from last year, he said, and the company plans only on the basis of presales and backlog.
Starr said he doubts that mortgage rates can come down enough this year to release much pent-up demand. He said he doesn't expect any substantial improvement in activity until next year.
To prepare for that, the builder has postponed major construction projects until early May, so that his homes won't be ready for occupancy until after Labor Day. The projects will be of limited scale with few models, he said, adding that "starter" homes will be emphasized because that market doesn't hinge on the sales of existing homes.
The company also is doing development work for other projects so that houses can be built quickly if sales rebound, he said.
Moderate-price models are seen as the best bet by Clover Development Corp. of Rosslyn, a relative newcomer to the Washington market.
Sales won't begin until April 25 for the company's 448-unit garden condominium in Burke Cove, but about 75 couples have put down $100 each to get on the waiting list to buy the first units, priced from $45,000 to $60,000. gClover plans to start Saxony Square, a similar project in Alexandria, later this year.
The firm's executive vice president, Edward Daniels, maintains that, despite high interest rates, both projects will draw customers. Those who buy in that range are typically two-income households of 28- to 35-year-olds who can handle greater mortgage costs, Daniels said. If Clover were building higher-priced houses, "we'd be concerned," he added.
But higher-priced houses are said by some builders to be selling comparatively better. One builder of such homes, William L. Berry Co., has experienced an increase in sales since the weather improved, said executive secretary Helen Wald. Potential customers also have expressed "substantial interest" in new developments planned for McLean, Burke and Fairfax Station, all slated to begin in June, she said.
Phil Bowman, vice president of DRW Inc. of Silver Spring, meanwhile says his company is "somewhat bullish," despite the current high interest rates that have made other builders so pessimistic.
The company anticipates that mortgage rates will creep down to 13 3/4 percent by early summer, creating some improvement in sales, he said. To get ready, the builder just started 40 units of a 119-unit project for occupancy in late fall.
But DRW will wait to see how the market responds before beginning the rest of the project, Bowman added.
Other builders see buyers beginning to adjust to higher mortgage rates. Spencer Stouffer, marketing vice president of Miller & Smith of McLean, said the company's sales have picked up in recent weeks, apparently because some buyers have given up waiting for mortgages rates to fall and, in fact, believe for mortgages rates to fall and, in fact, believe that they will not decline for some time to come.
Nevertheless, Miller & Smith's sales have been generally steady for the last six months -- but "nothing to write home about," Stouffer said.
The company builds on speculation, monitoring sales monthly. So far, Miller & Smith is "cautiously optimistic" but expects sales to be off 25 percent this year from last, largely because there won't be any months of dramatic rate declines to boost sales, Stouffer said.
But he pointed success he says his company has had at Norbeck Oaks, a Montgomery County Subdivision, where by cutting marketing and financing costs it was able to lower home prices. For example, Stouffer said the subdivision used no models and no full-time sales person at the site, but instead had just two boxes there with price sheets and brochures inviting prospective buyers to call at a Gaithersburg sales office for an appointment.
Other builders maintain that they are holding up as well or better than last year, partly by reducing profits or clamping down on inventory.
February was the fifth-best sales month in the history of Edward W. Carr of Annandale, but Vice President John Cowles said the builder accomplished that by holding down prices, which cut into profits.
Carr currently has 13 active projects, each with seven to 10 houses being built on speculation. The firm is careful to avoid inventory buildup, a problem for many builders during the housing recession of the mid-1970s.
Kettler Brothers, which is based in Gaithersburg, adjusts its construction activity weekly to avoid such an inventory buildup, a spokesman said, and generally keeps no more than 100 houses under construction or on the market at any one time.The builder expects to start 500 to 525 homes this year, keeping up with last year's level of 525.